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Molson Coors (TAP) Q4 Earnings, Sales Lags Estimates

Global brewer Molson Coors Brewing CompanyTAP delivered weaker than expected fourth quarter of 2016 results.

Molson Coors' adjusted earnings of 46 cents were way behind the Zacks Consensus Estimate of 88 cents by 47.7% but increased 17.9% from the prior-year earnings of 39 cents per share.

Earnings increased on a year-over-year basis driven by higher income in the U.S. and improved performance in International segment, partially offset by the indirect tax provision in Europe.

Molson Coors Brewing Company Price, Consensus and EPS Surprise

Molson Coors Brewing Company Price, Consensus and EPS Surprise | Molson Coors Brewing Company Quote

Revenues and Operating Profits

Net sales, including excise tax, declined 4.2% year over year to $2.47 billion in the fourth quarter of 2016. Sales also lagged the Zacks Consensus Estimate of $2.57 billion by 3.9%.

Sales declined in the regions of Canada and Europe. However, sales in the International regions improved, driven by the acquisition of the Miller global brands.

Currency had a negative impact of $53.0 million on overall sales in the quarter. On a constant currency basis, sales dropped 2.2%.

Molson Coors' worldwide beer volume, however, improved 1.2% to 22.1 million hectoliters, despite a 1.9% decline in Coors Light brand. We note that worldwide volume continues to exclude contract brewing and wholesaler non-owned brand volumes, and now includes 100% of MillerCoors brand volumes.

Sales volume grew 180% to 21.8 million hectoliters in fourth quarter of 2016. Sales declined in the U.S. and Canada, but it grew in the regions of Europe and International regions.

Underlying (excluding special and other non-core items) pre-tax income increased 4.4% year over year to $118.5 million driven by the improvement in MillerCoors offset by a decline in the geographical segments of Canada and Europe. Currency had a net negative impact of $7.3 million in the fourth quarter. On a constant currency basis, underlying pre-tax income increased 10.8%.

Underlying EBITDA was $405.1 million in the fourth quarter, a 4.6% increase from the year-ago period.

Though Molson Coors' shares have increased 14.52% in comparison to the Zacks categorized Beverages-Alcohol industry's growth of 1.14% over the past one year. Notably, the industry is part of the top 27% of the Zacks Classified industries (72 out of the 265).

Segment Details

The company operates through the following geographical segments.

Canada: Molson Coors Canada net sales dropped 3.6% to $329.6 million in the quarter due to a decline in sales volume and sales-to-retailers volume (STRs). Net sales per hectoliter inched up 0.6% in local currency, driven primarily by positive pricing and brand mix, partially offset by mix shift toward lower-revenue packages and contract brewing volume. On a constant currency basis, segment sales decreased 3.7%.

The segment's underlying pretax income fell 6.4% to $48.5 million due to lower volume, partially offset by results of cost savings and positive pricing. Currency positively impacted earnings by $0.5 million.

United States (MillerCoors): On Oct 12, Molson Coors completed the acquisition of remaining 58% stake in the MillerCoors' joint venture , along with the Miller global brand portfolio. It now has full rights to all the brands in the MillerCoors portfolio for the U.S. market, including Redd's and import brands such as Peroni and Pilsner Urquell. The deal makes Molson Coors the largest brewery in the U.S. and the third largest in the world.

Fourth quarter underlying pre-tax income increased 42% to $214.7 million when compared to the year-ago figure, driven by lower cost of goods, net pricing growth and lower marketing expenses, partially offset by lower volume.

Europe: It includes the U.K. segment combined with the results of operations in Central Europe, excluding the Central Europe global export and license business.

The segment reported net sales decline of 21.3% to $366.8 million in the fourth quarter of 2016, due to unfavorable currency impact of $53.7 million. On a constant currency basis, segment sales decreased 9.8% due to a decline in volumes. Europe net sales per hectoliter decreased 9.8% in local currencydue to an approximate $50 million indirect tax provision established in the quarter related to an ongoing legal dispute. The decrease was partially offset by positive net pricing.

Europe underlying pre-tax results decreased from income of $36.2 million a year ago to a loss of $14.5 million in the quarter, due to the indirect tax provision and lower net pension benefit, partially offset by higher volumes and positive net pricing. Currency benefited the underlying results by $1.9 million.

International Business: Segment net sales grew significantly by 62.6% to $60.0 million in the quarter. On a constant currency basis, segment sales increased 61.2%, driven by higher sales volume. Sales volume including royalty volume increased 82.5% driven by the addition of the Miller global brands, along with Coors Light growth in Latin America and Australia.

The International segment's underlying pre-tax loss was $1.0 million in the fourth quarter, narrower than a loss of $5.1 million a year ago. This was driven by the addition of the Miller brands, volume growth and positive pricing in Latin America and Australia, cost savings and cycling the substantial restructure of the China business in 2015. This was partially offset by the impact of total alcohol prohibition in Bihar and the transfer of the Staropramen U.K. business to the Europe segment. Foreign currency movements negatively impacted underlying pre-tax results by $0.2 million in the quarter.

Full Year 2016 Results

In 2016, adjusted earnings were $4.33 per share, which were way behind the Zacks Consensus Estimate of $6.32 per share by 31.4% but increased 1.9% from the prior-year earnings.

Net sales, including excise tax, declined 2.3% year over year to $10.983 billion in 2016. Sales also lagged the Zacks Consensus Estimate of $11.082 billion.

Other Financial Update

Total debt at the end of the fourth quarter was $12.1 billion, and cash and cash equivalents totaled $560.9 million, resulting in net debt of $11.512 billion. Total debt reflects transaction-related debt and approximately $200 million of debt pay-down near the end of the year.

Zacks Rank

Molson Coors currently has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the consumer staples sector include Constellation Brands Inc. STZ , Pinnacle Foods, Inc. PF and ConAgra Foods, Inc. CAG . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

Constellation Brands has delivered positive earnings surprises in the past four quarters, with a positive average surprise of 6.74%. It also has long-term earnings growth rate of 19.03%.

Pinnacle Foods has long-term earnings growth rate of 8.33%, while ConAgra Foods has long-term earnings growth rate of 8.00%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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